SIMSR

MMS (2010-12)
FINANCIAL
MANAGEMENT

Accounting Standards
Presented by:
Akshay Hajare (19)
Neelam Sidhpura (52)
AGENDA OF DISCUSSION
 Introduction of Accounting Standards
 Objectives of Accounting Standards
 Types of Accounting Standards
INTRODUCTION
 Written Documents issued by Government or
Regulatory Body
 Initiated by Kumar Mangalam Birla, chairman
committee of Corporate Governance for
Financial Disclosures
 Also initiated by Chair person of NACAS
(National Advisory Committee on Accounting
Standards)
OBJECTIVES
 Standardize the diverse Accounting Policies
 Add the reliability to the Financial Statement
 Facilitate inter-firm and intra-firm
comparison
AS 1-DISCLOSURE OF ACCOUNTING
POLICIES
 Specific policies adapted to prepare FS
 Should be disclosed at one place
Purpose :-
1. Better understanding of FS
2. Better comparison analysis
3. True and faire view of firm’s income and
financial position
AS 2- ACCOUNTING FOR
INVENTORIES
 Used for computation of Cost of inventories
and to show in BS till it is sold
Consists of :-
1. Raw Materials
2. Work in progress
3. Finished goods
4. Spares, etc
MEASUREMENTS OF
INVENTORIES
 Determination of Cost of Inventories
Cost of purchase (Purchase price, duties
& taxes, freight inwards)
Cost of conversion
 Determination of Net realizable value
AS 3- CASH FLOW STATEMENTS
 Incoming and outgoing of cash
 Act as barometer to judge surplus and
deficit
 Explain Cash flow under 3 heads :-
1. Cash flow from operating activities
2. Cash flow from financing activities
3. Cash flow from investing activities
AS 4- CONTINGENCIES AND EVENTS
OCCURRING AFTER BS DATE
 Events that occur between BS date & date of
financial statement
 For maintaining Provision of Bad debts
AS 5- NET PROFIT OR LOSS FOR THE PERIOD,
PRIOR PERIOD ITEMS AND CHANGE IN
ACCOUNTING POLICIES
 Ascertain certain criteria for certain items
 Include income and expenditures of
Financial year
 Consists of 2 component
1. Profit and loss of ordinary activities
2. Profit and loss of extra ordinary activities
AS 6- ACCOUNTING FOR
DEPRECIATION
 A non-cash expenditure
 Distribution of total cost to its useful life
 Occurs due to obsolescence
 Different methods of computation
1. Straight line method ( SLM )
2. Written-down value or diminishing value
(WDV)
AS 7- CONSTRUCTION
CONTRACT
 This standards say that the accounting
treatment of revenue and cost associated
with construction contract should be
prescribed.
 The amount of contract revenue recognized
as revenue should be disclosed in the
revenue period.
AS 8- ACCOUNTING FOR R&D
 To deal with treatment of Cost of research
and development in the financial
statements, identify items of cost which
comprise R&D costs lays down condition R&D
cost may be deferred and requires specific
disclosures to be made regarding R&D costs.
AS 9- REVENUE RECOGNITION
 Means gross inflow of cash and other
consideration like arising out of :-
1. Sale of goods
2. Rendering services
3. Use of enterprise resources by other
yielding interest, dividend and royalities.
AS 10- ACCOUNTING FOR FIXED
ASSETS
 Called as Cash generating Assets
 Expected to used for more than a Accounting
period like land, building, P/M, etc
 Shown at either Historical or Revalued value
AS 11- EFFECT OF CHANGE IN FOREX
RATES
 Classification for Accounting treatment:-
1. Category I: Foreign currency transactions:
a) buying and selling of goods or services
b) lending and borrowing in foreign currency
c) Acquisition and disposition of assets
2. Category II: Foreign operations:
a) Foreign branch
b) Joint venture
c) Foreign Subsidiary
3. Category III: Foreign Exchange contracts:
a) For managing Risk
b) For trading and Speculation
AS 12- ACCOUNTING FOR GOVT.
GRANTS
 Assistance provided by Govt. in cash or in
kind like
1. Grants of Assets like P/M, Land,etc
2. Grants related to depreciable FA
3. Tax exemptions in notified area
AS 13- ACCOUNTING FOR
INVESTMENTS
 Assets held for earning incomes like dividend,
interest, rental for capital appreciation, etc
 An enterprise should disclose current and long
term investment.
 Cost of investment should include brokerage,
fees and duties as acquisition charges
AS 14- ACCOUNTING FOR
AMALGAMATION
 Section 391 to 394 of Companies Act, 1956
governs the provision of amalgamation.
 This AS classifies amalgamation into two
categories:
 In the nature of merger.
 In the nature of purchase.
 Disclosures:
1. Names and nature of amalgamating companies
2. Effective date of amalgamation
3. Method of Accounting used
4. Particulars of scheme sanctioned under a
statute
AS 15- EMPLOYEES BENEFITS
 All forms of consideration given by enterprise
directly to the employees or their spouses,
children or other dependants, to other such
as trust, insurance companies in exchange of
services rendered.
AS 16- BORROWING COSTS
 Interest and cost incurred by an enterprise in
connection to the borrowed funds.
 Availed for acquiring building, installed FA to
make it useable and saleable.
AS 17- SEGMENT REPORTING
 It consists of 2 segment:-
1. Business segment
2. Geographical segment
AS 18- RELATED PARTY
DISCLOSURE
 Related party are those party that controls or
significantly influence the management or
operating policies of the company during
reporting period
 Disclosure:
1. Related party relationship
2. Transactions between a reporting enterprises
and its related parties.
3. Volume of transactions
4. Amt written off in the period in respect of
debts
AS 19- ACCOUNTING FOR
LEASES
 Agreement between Lesser And Lessee
 Two types of leases:
1. Operating lease
2. Finance lease
 Different from Sale
AS 20- EARNING PER SHARE
 Earning capacity of the firm
 Assessing market price for share
 AS gives computational methodology for
determination and presentation of EPS
 EPS= Net profit (after tax)
No. of equity share
AS 21- CONSOLIDATED BALANCE
SHEET
 Accounting for Parent and Subsidiary
company in single entity
 Disclosure:-
1. List of all subsidiaries
2. Proportion of ownership interest
3. Nature of relation whether direct or
indirect
AS 22- ACCOUNTING FOR TAXES AND
INCOME
 Tax accounted for period in which
corresponding revenue & expenses are
accounted
 It should be accrued and not liability to pay
 Deals in 2 measurements:-
1. Current tax
2. Deferred tax
AS 23- ACCOUNTING FOR
INVESTMENTS IN ASSOCIATES
 Objectives to set out principles and
procedures for recognizing the investment
associates in consolidated financial
statement of the investors, so that effect of
investments in associates on financial
position of group is indicated.
AS 24- DISCONTINUING
OPERATIONS
 Establishes principles for reporting
information about discontinuing operations
 Discontinuing operation is relatively large
component of an enterprise.
 It will be carried either through de-merger or
spin- off or piecemeal disposal of assets and
setting of liabilities.
AS 25-INTERIM FINANCIAL REPORTING
(IFR)
 Reporting for less than a year i.e 3 months
 Clause 41 says publish financial results on
quarterly basis
 Objective is to provide frequently and timely
assessment
AS 26- INTANGIBLE ASSETS
 No physical existence
 Can not be seen or even touched
 3 featured as per AS
1. Identifiable
2. Without physical substance
AS 27- FINANCIAL REPORTING OF
INTEREST IN JOINT VENTURE
 What is joint venture?
 Three types of JV in case of Financial
reporting
Jointly controlled operation
Jointly controlled assets
Jointly controlled entities
AS 28- IMPAIRMENT OF ASSETS
 Weakening of Assets value
 Occurs when carrying cost more than
recoverable amount.
AS 29- PROVISION, CONTINGENT
LIABILITIES AND ASSETS
 Provisions:-
It is a Liability
Settlement should result in outflow
Liability is result of obligating event
 Contingent liabilities:-
Obligation arises of past event
Existence confirmed when actually occurred of uncertain
future
 Contingent Asset
FINANCIAL INSTRUMENTS
 AS 30 – Recognition and Measurement
 AS 31 – Presentation
 AS 32 – Disclosures
THANK YOU